Style Migration And The Cross-Section Of Stock Returns
Stocks experiencing sharp changes in their style characteristics present unique opportunities to examine how investors view style information in making their portfolio allocation decisions. The authors examine the average returns of such stocks - which they call "Style migrants" - and the covariation of the returns of style migrants with their new style cohort stocks to provide new insight into the way investors use equity style information. These results indicate that investors strongly judge a stock by its style. Specifically, they find that stocks experiencing large levels of variability in their book-to-market and momentum characteristics during the prior three years significantly outperform, during the following year, other stocks with more style stability.